BANKRUPTCY NEWS

Judge: Detroit Eligible for Chapter 9 Bankruptcy

DETROIT December 3, 2013 (AP)

By ED WHITE Associated Press

A federal judge ruled Tuesday that Detroit can use bankruptcy to cut employee pensions and relieve itself of other crushing debts, handing a defeat to the city's unions and retirees and shifting the case into a delicate new phase

Judge Steven Rhodes, who wondered aloud why the bankruptcy had not happened years ago, said pensions can be altered just like any contract because the Michigan Constitution does not offer bulletproof protection for employee benefits. But he signaled a desire for a measured approach and warned city officials that they must be prepared to defend any deep reductions.

"This once proud and prosperous city can't pay its debts. It's insolvent," Rhodes said in formally granting Detroit the largest public bankruptcy in U.S. history. "At the same time, it also has an opportunity for a fresh start."

The ruling came more than four months after Detroit filed for Chapter 9 protection.

Rhodes agreed with unions and pension funds that the city's emergency manager, Kevyn Orr, had not negotiated in good faith in the weeks ahead of the July filing, a key condition under federal law. But he said the number of creditors — more than 100,000 — and a wide array of competing interests probably made that "impossible."

Detroit "could have and should have filed for bankruptcy long before it did. Perhaps years," the judge said.The decision set the stage for officials to confront $18 billion in debt with a plan that might pay creditors just pennies on the dollar and is sure to include touchy negotiations over the pensions of about 23,000 retirees and 9,000 workers. Orr says pension funds are short by $3.5 billion.

Rhodes promised that he would not "lightly or casually" sign off on just any cuts.

The city has argued that bankruptcy protection will allow it to help beleaguered residents who for years have tolerated slow police responses, darkened streetlights and erratic garbage pickup — a concern mentioned by the judge during a nine-day trial that ended Nov. 8.

Before the July filing, nearly 40 cents of every dollar collected by Detroit was used to pay debt, a figure that could rise to 65 cents without relief through bankruptcy, according to the city.

Orr praised the judge's ruling and pledged to "press ahead." He also acknowledged that pensions would be a sensitive issue because they represent a "human dimension" to the crisis, with some retirees getting by on less than $20,000 a year.

City truck mechanic Mark Clark, 53, said he may look for another job after absorbing pay cuts and higher health care costs. Now a smaller pension looms.

"Most of us didn't have too much faith in the court. ... The working class is becoming the have-nots," Clark said outside the courthouse. "I'm broke up and beat up. I'm going to pray a whole lot."

Marcia Ingram, a retired clerical worker, said she may need to find work but added: "How many folks are going to hire a 60-year-old woman?"

The judge spoke for more than an hour in a packed courtroom, reciting Detroit's proud history as the diverse, hard-working Motor City devoted to auto manufacturing. But he then tallied a list of warts: double-digit unemployment, catastrophic debt deals, thousands of vacant homes and wave after wave of population loss.

Behind closed doors, mediators led by another judge have been meeting with Orr's team and creditors for weeks to explore possible settlements.

Detroit accused of exaggerating $18bn debts in push for bankruptcy

By: Dominic Rushe - The Guardian

Report by thinktank Demos says Detroit has made 'extreme assumptions' to make city's problems seem worse than they are

Detroit's debts are a fraction of the $18bn lawyers pushing for bankruptcy say they are, and their costs are "irrelevant, misleading and inflated," according to a report released Wednesday.

A Demos thinktank report, issued as a city judge decides whether to allow Detroit to file for the largest municipal bankruptcy in US history, lays the blame for the city's woes at the feet of falling revenues, Wall Street banks and "extreme assumptions" calculated to make its problems worse than they are.

"There is no doubt that the city has suffered from structural decline and that state and city policies have not successfully addressed that decline. But that is not the immediate issue in a municipal insolvency. The issue is that the cash currently available does not cover the current expenses of the city," said Walter Turbeville, the report's author, a former Goldman Sachs investment banker and a leading expert in infrastructure finance and public private partnerships.

Kevyn Orr, the state appointed emergency manager, has argued that the city's pension and healthcare liabilities are a leading cause of the city's woes. City workers and retirees face draconian cuts on the $3.5bn in pension payments, and another $6bn in healthcare benefits they are owed. The average Detroit pensioner gets $19,000 a year. Under a deal now being discussed they would be given 16 cents to the dollar, cutting the average pension to $3,040.

The report claims Orr's focus on cutting benefits and other debts are "inappropriate and, in important ways, not rooted in fact."

Turberville questions the necessity of those cuts and the assumptions that underpin Orr's foundation for the $18bn total. According to the report:

• The emergency manager includes $5.8bn of debt from the water and sewerage department as a liability of the city, even though the department serves more than 3 million people across southeastern Michigan. Detroit has just 714,000 residents. "This debt is not a liability of the city's general fund; and, even if it were, only a fraction of it would allocable to the city," he writes.

• Orr's assertion that the city's pension funds have a $3.5bn shortfall is an "estimate, very different from the certain liability of a financial debt, based on calculations that use extreme assumptions that depart from most cities' and states' general practice," he writes.

According to Turberville, the real issue for Detroit is not its debts but declining revenues as a result of its rapidly falling population. The city's had close to 2 million residents in 1950 and 714,000 in 2010. During the recession, unemployment and the property crash exacerbated Detroit's revenue woes. Since 2008 the city's revenues have fallen by over 20%. This year it will have a budget shortfall of $198m.

The report also blames Wall Street for Detroit's troubles. "The biggest contributing factor to the increase in Detroit's legacy expenses is a series of complex deals it entered into in 2005 and 2006 to assume $1.6bn in debt," he writes. Instead of issuing "plain vanilla general obligation bonds," the city financed its debt using certificates of participation (COPs), complex financial instruments municipalities often use to get around debt restrictions. These products were "ill-suited for a city like Detroit, which had been hovering on the edge of a credit rating downgrade for years." They allowed the banks to collect termination payments under certain conditions and the likelihood of Detroit defaulting was "imprudently high," the report claims. The city failed to meet its obligations, and the banks are now demanding $250m-$350m in payments.

"The banks and insurance companies were in a far better position to understand the magnitude of these risks and they had at least an ethical duty to forbear from providing the swaps under such precarious circumstances," he writes.

The city has also handed too much money to private interests – giving as much as $20m in some years to companies building businesses in Detroit. "To the extent that the development would have occurred without these tax subsidies, or with less subsidies, the program was a burden on city revenues at a time when it was particularly damaging," he writes.

The state of Michigan has played its part, too, according to Turberville, slashing $67m in state revenue sharing with the city. About $24m of those cuts were triggered by Detroit's declinig population but the majority, $42.8m, were cut at the discretion of the state legislature.

Tuberville says Orr should stop his plans to cut benefits, which run "counter to the long-term goal of structurally improving city services." Instead, Orr should reclaim tax benefits to corporations, renegotiate with the banks and reinstate Michigan's discretionary revenue sharing.

"Once Detroit gets through this immediate crisis, the city's elected officials, hopefully working collaboratively with the state legislature and the governor, can turn their attention to post-crisis, structural programs that would grow the city's tax base and allow it to return to prosperity over time," he writes.

Rapper DMX's bankruptcy filing tossed

Credit protection dismissed due to 'inconsistencies'

By: Ernie Garcia

Earl Simmons, 42, the hip-hop star who traces his roots to Mount Vernon and Yonkers, stands to lose his possessions, including his share of a Mount Kisco home, now that he doesn’t have protection from creditors and baby mamas who are owed $1.8 million in contract disputes, goods, services and child support.

Simmons’ single biggest debt is $1.3 million in child support owed to some of the 10 children he has fathered.

Bankruptcy Court Judge Robert D. Drain dismissed the July 29 Chapter 11 filing at the request of U.S. Trustee Tracy Hope Davis, who in court papers said that Simmons’ failed to give the court trustworthy information.

Davis’ office accused Simmons of “obvious inconsistencies regarding his income and assets, rendering it impossible to ascertain his financial affairs.”

Simmons owns half of a Mount Kisco home at 142 McLain St., which was also a point of contention in court papers because the rapper couldn’t prove he has insurance for the house. The Mount Kisco house has a lien of $453,702 according to court records.

Simmons’ publicist Domenick Nati said he was unaware of his client’s court hearing today.

“Despite this recent obstacle, the team will continue to move forward with DMX’s national performances and we are still working relentlessly at obtaining his passport for his fans overseas,” Nati wrote in an email.

Drain also prohibited Simmons from filing for bankruptcy for 18 months.

Court papers noted that the rapper’s 2009 bankruptcy filing was dismissed because of Simmons’ “unreasonable delays.”

The dismissal is the latest legal setback for the rapper.

In August and July he was arrested on drug and drunken driving charges in South Carolina, where he’s currently living.

Jury:BofA liable for Countrywide mortgage fraud

NEW YORK — Bank of America was found liable for fraud Wednesday for a program — dubbed "the Hustle" — that caused millions in losses to federally backed mortgage finance firms Fannie Mae and Freddie Mac amid fallout from the financial crisis.

The civil verdict by a Manhattan federal court jury similarly found the bank's Countrywide Financial unit found liable, and also determined that former Countrywide executive Rebecca Mairone committed fraud while overseeing the loan-origination program. Bank of America acquired Countrywide in July 2008.

The decision following a month-long trial focused on evidence that the Countrywide program processed mortgage applications at high speed with little checking for fraud, misrepresentations or other potential wrongdoing.

U.S. District Judge Jed Rakoff is expected to determine civil costs to be paid by the bank in the penalty phase of the case.

"Almost a year to the day after we brought suit, a unanimous jury has found Countrywide, Bank of America and senior executive Rebecca Mairone liable for making disastrously bad loans and systematically removing quality checks in favor of its own balance," said Manhattan U.S. Attorney Preet Bharara in a statement after the verdict. "As demonstrated at trial, they adopted a program that they called the Hustle, which treated quality control and underwriting as a joke."

Bank of America bought Countrywide "thinking it had gobbled up a cash cow," said Bharara, but profits from the program were "built on fraud."

Bank of America spokesman Lawrence Grayson said the Charlotte-based financial giant, the second-largest U.S. bank, is studying the verdict.

"The jury's decision concerns a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," said Grayson. "We will evaluate our options for appeal."

Defense attorney Marc Mukasey called Mairone "a model of honesty, integrity and ethics." Insisting there was no fraud, Mukasey said "we'll fight on."

Countrywide created the Hustle program, officially known as the HSSL, or High Speed Swim Lane, in 2007 as the real estate market started to collapse and the market for sub-prime mortgage loans dried up.

The aim was to move toward handling more prime mortgage loans, which generally are made to borrowers who have high credit ratings and can afford larger down payments.

But federal prosecutors charged that the program's design was to have loans "move forward, never backward," and to remove "toll gates" that could slow the loan approval process.

Employees assigned to the program received bonuses based on the volume of mortgages approved, a dramatic turnabout from previous metrics that focused more on loan quality, prosecutors charged.

An internal quality review in January 2008 found that 57% of Hustle loans defaulted, prosecutors charged in the lawsuit they filed last year. Thousands of loans approved under the program were ultimately sold to Fannie and Freddie.

Thursday's verdict is "a huge deal," said John Campbell, mortgage fraud expert at the University of Denver.

The case goes to the heart of what went wrong in the subprime mortgage bubble when the people who made loans weren't responsible for them later, Campbell said. He predicted the case will lead to more prosecutions and also more individual and class action lawsuits.

While the case related to a small piece of the mortgage market, it could embolden other government investigations, said Kevin Whelan, national campaign director for the Home Defenders League, a national movement of homeowners underwater on their mortgages.

"The fact that they're winning in court could inspire the federal government to keep going with its own investigations into banks and executives," said Whelan. "It's not too late."

Alexandria, Va.— Total bankruptcy filings were 801,783 nationwide during the first nine months of 2013 (Jan. 1-September 30), a 13 percent decrease from the 921,927 total filings recorded during the same period a year ago, according to data provided by Epiq Systems, Inc. The 767,445 total noncommercial filings for the first three quarters of 2013 represented a 13 percent drop from the noncommercial filing total of 877,123 during the first three quarters of 2012. Total commercial filings during the first nine months of the year were 34,338, a 23 percent decrease from the 44,804 filings during the same period in 2012. Chapter 11 filings also fell during the first nine months of 2013; the 5,171 filings in the first nine months of 2013 represented a 14 percent decrease from the 5,999 chapter 11 filings during the first nine months of 2012.

The 80,645 total bankruptcy filings for the month of September represented an 8 percent decrease compared to the 87,599 filings in September 2012. The 77,269 total noncommercial filings for September also represented an 8 percent drop from the September 2012 noncommercial filing total of 83,543. Total commercial filings for September 2013 were 3,376, a 17 percent decrease from the 4,056 filings recorded during the same period in 2012. Chapter 11 filings increased, however, as the 579 chapter 11 filings reported in September 2013 were 11 percent higher than the 525 filings recorded in September 2012.

The average nationwide per capita bankruptcy filing rate for the first nine calendar months of 2013 (Jan. 1-Sept. 30) decreased slightly to 3.45 (total filings per 1,000 population) from the 3.49 rate for the first eight months of the year. The average daily filing total in September 2013 was 2,688, an 8 percent decrease from the 2,920 total daily filings registered in September 2012. States with the highest per capita filing rates (total filings per 1,000 population) through the first nine months of 2013 were:

1. Tennessee (6.74)

2. Georgia (5.90)

3. Alabama (5.80)

4. Utah (5.34)

5. Indiana (5.24)

ABI has partnered with Epiq Systems, Inc. in order to provide the most current bankruptcy filing data for analysts, researchers and members of the news media. Epiq Systems is a leading provider of managed technology for the global legal profession.

ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.

Railway in Quebec disaster gets Canada bankruptcy protection

By Leila Lemghalef and Dave Sherwood

MONTREAL/BANGOR Aug 8 (Reuters) - The U.S. railway whose runaway train killed 47 people in a tiny Quebec town last month was granted bankruptcy protection from a Canadian court on Thursday and took steps in that direction in a U.S. court as well.

Montreal Maine & Atlantic railroad filed for protection in both countries on Wednesday, saying its revenues had deteriorated since the July 6 crash and it could not afford to pay its mushrooming financial obligations.

The company's runaway crude oil train derailed in the small lakeside town of Lac-Megantic, Quebec, exploding in huge fireballs that destroyed a swathe of the town's core. About 5.6 million liters of crude oil were spilled, and MMA estimated the cleanup costs would exceed C$200 million.

Quebec Superior Court Judge Martin Castonguay called the company's behavior "deplorable" and said he was not impressed by its management.

"This decision is to prevent legal anarchy," Castonguay told the courtroom after approving the bankruptcy protection for MMA's Canadian unit.

Also on Thursday, a U.S. federal judge in Maine ordered the appointment of a federal trustee to oversee MMA's bankruptcy proceedings and help ensure that the railroad remains in operation so that service continues for local companies.

Thursday's decision allows the railway to continue to operate and meet its payroll obligations through Aug. 22, when another hearing will be held.

The judge in Maine questioned whether the company could remain afloat without its approximately $1 million a month crude oil transport business.

Despite MMA's decision to stop shipping crude after the crash, company lawyer Roger Clement assured Judge Louis Kornreich that the business would remain viable.

"The railroad had a very healthy business before the hauling of crude oil started about 18 months ago. We're very hopeful that it can bring its revenues back up," he said.

After the hearing, Clement told reporters that he thought the sale of MMA's assets to another company interested in shipping crude between Montreal and Saint John, New Brunswick - the line's eastern terminus and home to Irving Oil's refinery - was a "distinct possibility."

"I expect there will be a lot of interest from other rail operators in purchasing the lines of Montreal, Maine and Atlantic. There's no other route that's as direct," he said.

The bankruptcy filing sparked anger in Lac-Megantic, where residents fear victims' families may not get the compensation they are seeking through class-action and individual suits against the company in U.S. and Canadian courts.

The governments of Quebec and the town of Lac-Megantic have demanded MMA foot the cleanup bill, which already amounts to C$7.8 million ($7.6 million).

Quebec Health Minister Rejean Hebert said the provincial government was seeking status in the bankruptcy case as a secured creditor, which would assure it would receive payment from MMA before some other claimants.

The U.S. government and Canada's federal and provincial government are the company's biggest secured or potential secured creditors.

Hebert said the Quebec government would take priority over the U.S. government on claims against MMA's Canadian unit.

Bankruptcy Lawyers See Land Of Opportunity In Detroit Crisis

By Nick Brown

July 21 (Reuters) - With more than $18 billion at stake in Detroit's restructuring, big law firms and other advisers are clamoring to represent the city's many creditors - including some advisers not exactly known for municipal work.

The city, which filed the largest-ever U.S. municipal bankruptcy on Thursday, tapped high-priced lawyers from Jones Day, financial advisers from Ernst & Young and restructuring consultants from Conway MacKenzie, court papers show.

For creditors and related parties, there is clearly a lot at stake. That means bondholders, insurers, retirees and others are sure to be accompanied in court by platoons of lawyers.

Detroit owes more than $8 billion in bond debt, and the insurers likely on the hook for those costs have already retained big-name law firms to take their cases.

Federal Guaranty Insurance Co tapped Weil Gotshal & Manges, according to a source close to the matter, who declined to be named because the information was not public as of Saturday. An attorney for Weil declined to comment.

David Dubrow, a lawyer at Arent Fox, confirmed on Saturday that he has been tapped by Ambac Financial Group.

Bond insurers will play a key role in Detroit's case. While a portion of the city's $1.13 billion in general obligation bonds are secured by city assets, about $651 million of it is secured only by the ability to raise taxes. The city's emergency manager, Kevyn Orr, has said he will treat that portion of the debt as an unsecured claim.

That classification, which has been largely untested in federal courts, is likely to be hotly contested and possibly litigated by bondholders or their insurers.

Detroit also owes $5.7 billion in unfunded healthcare and other benefits to retirees, and has asked the judge to form a committee to look out for their interests. The Department of Justice may also appoint a committee of unsecured creditors in the case. Both moves would mean opportunities for professional advisers.

The city needs to negotiate new labor deals with unions, and its pension funds are underfunded by $3.5 billion, providing yet more opportunities for attorneys to advise creditors.

Chapter 9, the section of the bankruptcy code that governs municipal bankruptcies, is attractive for advisers, provided there is money to pay them. Unlike in Chapter 11, where billing is subject to court and regulatory review, Chapter 9 allows bills to stay between the adviser and its client.

In corporate restructurings, creditors, judges and the Justice Department pore over fees line by line, and can raise objections to unnecessary or overpriced items. Over the past few years, the Justice Department has ramped up its policing of high fees and has required bankruptcy lawyers to disclose more.

In municipal bankruptcies, fees could be subject to disclosure under the Freedom of Information Act, but they do not need to be reported publicly in court.

"You're used to being in a world where you have to explain yourself, and suddenly you don't anymore," said a bankruptcy lawyer, who asked not to be named.

The catch is that, unlike in corporate bankruptcies, there is no mechanism under Chapter 9 to make the bankrupt entity pay certain creditors' fees. And corporate bankruptcies are generally more lucrative for advisers because there is often more money to go around.

But with $18.5 billion in debt, Detroit is an outlier among municipal bankruptcies, where advisers see the potential for high fees without the hassle of having to justify them in court.

A NEW FRONTIER

In the past, only a small handful of professionals were known for having expertise in municipal restructuring. But a recent slew of Chapter 9 filings has yielded many new faces, and Detroit's bankruptcy will only continue that trend.

"Every time a case gets bigger, there are new players," said Richard Levin, a partner at Cravath Swaine & Moore who is representing the Detroit Institute of Arts in the restructuring.

Chapter 9 filings are rare, with only about 650 cases filed in the 75 years to 2012, mostly involving small municipal entities like sewer districts. But, the last three years have seen filings by the city of Harrisburg, Pennsylvania, Jefferson County, Alabama and the California cities of Stockton and San Bernardino.

And a concurrent lull in corporate bankruptcies has put strain on big restructuring firms like Weil Gotshal, which last month laid off 170 associates and support staff, driving professionals toward municipal work.

"Chapter 9 is not something I started out doing," said George South, a partner at DLA Piper who has become well-versed in the arena, representing creditor groups in the bankruptcies of both Harrisburg and Jefferson County.

PLENTY OF CONSTITUENCIES

In addition to general obligation bonds, Detroit owes nearly $6 billion in revenue bonds and $1.43 billion in pension certificates. Even though the bond insurers are likely to be the ones on the hook, the bondholders themselves will also "lawyer up."

Subsets of the holders may even band together to form committees if they feel a united front would better serve their interests, providing yet another potential path for advisers.

A number of other large law firms, including Brown Rudnick, Orrick Herrington & Sutcliffe and DLA Piper, are involved in the case or looking for ways in, according to people familiar with the matter.

Even if advisers lose out on big-money clients, Detroit's restructuring calls for a slew of projects and transactions that will require their own armies of professionals.

"There's all kinds of consulting opportunities," said Levin, whose client, the Detroit Institute of Arts museum, is at the center of a dispute over whether the city can sell the museum's art collection.

Orr, the emergency manager, has outlined in court papers his plans to create a new water and sewer management authority, transfer Detroit's Belle Isle Park to the state of Michigan, and restructure Coleman A. Young airport, which has not serviced commercial jets in 13 years but which the city must maintain to keep some federal subsidies.

Each of those moves will require lawyers, consultants and financial advisers to strategize the most cost-efficient execution, said Kenneth Klee, a Chapter 9 expert and bankruptcy lawyer at Klee Tuchin Bogdanoff & Stern.

"Chapter Nines require complete expertise in the area of municipal finance," Klee said. "If you only have bankruptcy expertise, that's not enough."

Eventually, hedge funds and other investment vehicles could find ways into the case, as Orr has stressed the importance of new investment, particularly with respect to the proposed new water and sewer authority, which could finance its operations with new bond issuance.

The case could be a boon for smaller law firms, too.

While large, corporate creditors are apt to tap similarly colossal law firms with whom they have preexisting relationships, smaller or locally-based stakeholders may opt to hire attorneys native to Detroit.

"There are a lot of talented lawyers in Detroit," Levin said. "I would think pensions and unions, for example, might opt for those guys."

Circuit Court Judge Rosemarie E. Aquilina in Lansing today criticized Snyder, a Republican, for rushing the filing into court yesterday before she could rule on a bid by city workers and their pension funds to consider an emergency request to block the filing.

“I’m finding the actions that were taken in filing bankruptcy as overreaching and unconstitutional,” she said.

She ordered the governor to direct Detroit emergency manager Kevyn Orr to immediately withdraw the bankruptcy petition. She also said he cannot authorize further filings that would impair or diminish public pension benefits.

Attorney General Bill Schuette applied for permission to appeal the decisions. He also filed a motion to suspend Aquilina’s rulings pending appeal, Joy Yearout, a spokeswoman for the attorney general, said in an e-mailed statement.

Kenneth Klee, the bankruptcy lawyer who spearheaded the bankruptcy restructuring of Jefferson County, Alabama, said a state judge can’t force Detroit out of federal bankruptcy, even if Snyder agrees to try to withdraw the petition.

Once Detroit city filed the bankruptcy petition, it came under federal jurisdiction and the case cannot be withdrawn, even by Snyder, said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles. A federal judge would have to agree to dismiss the case, according to Klee.

‘Doesn’t Matter’

“If the governor changes his mind, it doesn’t matter,” he said. “Not only can’t she do that, but her order may be in contempt of a federal court, and a federal judge can put her in jail.”

Current and retired city workers had asked Aquilina to issue a temporary restraining order to keep the city of Detroit from filing for bankruptcy. The bankruptcy petition was filed minutes before the judge was able to rule.

“The plaintiffs should not have been blindsided in this court,” said Bill Wertheimer, a lawyer representing some of the plaintiffs.

Brian Devlin, a Michigan assistant attorney general, argued that no harm has yet been done to the plaintiffs.

Aquilina said harm was “imminent.”

“You understand bankruptcy court,” she said. “That’s why you ran there yesterday, not slowly, but in your running shoes.”

The bankruptcy case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

NEW YORK (CNNMoney)

7/18/2013

Detroit filed for bankruptcy Thursday afternoon, becoming the nation's largest public sector bankruptcy. The move could slash pension benefits to city workers and retirees, and leave investors holding the city's debt with only pennies on the dollar

Emergency Manager Kevyn Orr, appointed by Michigan Gov. Rick Snyder to oversee the city's finances, had been holding meetings with various creditors for the last five weeks in an effort to shed debt that the city can no longer afford. But despite the fact that some banks agreed to take reduced payments, Orr sought and received permission from Snyder to file.

Pension funds and retirees who fear deep cuts in promised benefits had filed suits to try to block a filing. Thursday's filing came before a hearing on the suits that was set for Monday.

Orr already halted payments on about $2 billion in debt last month, saying the city needed to preserve its dwindling supply of cash. His reorganization plan calls for cutting $11.5 billion in unsecured debt -- including pensions, health care funds and loans not backed by assets -- down to $2 billion. That would mean that investors and retirees would receive an average of just 17% of what they are owed. Specific plans for the cuts are unknown at this time.

Cutting retiree's pensions in a municipal bankruptcy has never been done before, said Michael Sweet, a California bankruptcy attorney who is an expert in public sector bankruptcies.

"It's relatively easy to blow off a creditor. It's much harder when it's people who are the fabric of your community who you'll need going forward," he said. "You need a police force, you need a fire department. You're saying [to them] you're not worth what you were previously promised."

Sweet said case law on whether pensions can be cut this way is very limited, and it could take years for a court fight over pension cuts to work its way to the U.S. Supreme Court. Given the poor state of funding for many public sector pension funds nationwide, "it's a big enough question, that (the Supreme Court) is where it likely will have to go," he said.

When employees of a bankrupt business lose their promised pensions, the Pension Benefit Guarantee Corp. steps in and provides a minimal level of benefits to the retirees. But that federal agency doesn't back pensions in the pubic sector.

Snyder spokeswoman Sara Wurfel said the decision to file for bankruptcy came after careful deliberation.

"This has been a huge problem for decades and it's come to a crisis point," she said. "The emergency manager tried to work with all the creditors, including pensioners."

Retirees and city employees say they can't accept cuts in their pension benefits.

"How am I supposed to live without my pension?" said David Sole, 65, after a protest in Detroit last month. Sole retired from the city's water department in January after 22 years.

Investors say the bankruptcy will make it more difficult for cities and towns everywhere to raise the money they need to build bridges, schools and other infrastructure. It will also hurt municipal bonds held by individual investors. There are more than $1 trillion worth of these general obligation bonds issued by local governments that are at risk said Peter Hayes, head of municipal bonds at BlackRock. He said there will be a ripple effect nationwide.

Orr said that the city needs to cut debt in order to restore services and lower costs, such as taxes and insurance, that he says have chased businesses and residents out of the city.

Detroit's population has fallen 28% since 2000. The unemployment rate, while down from a peak of 27.8% in the summer of 2009 -- when General Motors(GM, Fortune 500) and Chrysler Group were going through their own bankruptcies -- is still at 16.3%, nearly twice Michigan's statewide average.

While the auto industry has enjoyed a resurgence with strong car sales and profits, GM, Ford Motor(F, Fortune 500), Chrysler Group and parts manufacturers have been on a hiring binge, most of the industry's Michigan plants lay outside of city limits.

Unless its celebrity customers such as teen idol Justin Bieber and actor Leonardo DiCaprio want to put a lot of their own cash into the business, it looks like hybrid sports car company Fisker Automotive is nearing the end of the road.

Fisker has hired Kirkland & Ellis, a major bankruptcy law firm, to review the company’s options while it continues to seek investment partners.

Bankruptcy remains a source of financial relief for most borrowers. Most debts are discharged in bankruptcy and folks receive a “fresh start”. However, there is one huge exception that is not discharged automatically in any bankruptcy. Student loans. both government and private loans, are not discharged in bankruptcy without effort. Student loans are generally not discharged in bankruptcy cases unless the student can prove that the loans cannot be repaid without undue hardship. Providing undue hardship would seem to be easy in a bankruptcy case — after all, bankruptcy means broke, right? Unfortunately, bankrupt student loan debtors who bring their cases before the court find that bankruptcy courts rarely find that loans should be discharged for undue hardship. It’s a tough standard to meet. Here at Bankruptcy Law Network, our members have discussed the problem of student loan surviving bankruptcy many times, in articles by Kent Anderson, Craig Andresen, Jonathan Ginsberg. While there have been attempts to pass laws which would change how the government deals with student loans, post bankruptcy, student loans generally continue to cause problems for most debtors. Since bankruptcy generally doesn’t get discharge student loans, maybe there is another way to handle the financial stress…meet Elizabeth Warren.

Now, Elizabeth Warren has introduced her first piece of legislation: “The Bank on Students Loan Fairness Act“. Ms. Warren proposes a radical change: to give individuals the same interest rate that the big Wall Street banks obtain, an interest rate of about .75% on loans they obtain from the government. The interest rate for Stafford (government backed) student loans is currently set at 3.4% and is set to double to 6.8 percent in July.

As Warren explains, this student loan problem is a quiet but growing problem. She explains that taxpayers are investing in the big banks and that taxpayers should invest in our students. America should not be “drowning our students in debt while we give a great deal to the banks.” She points out that economists have stated that defaulted student debt poises a problem and barrier to the recovery of our economy. She concluded with a call to action and a reminder that students have only their voices, not lobbyists, to ask Congress for equal treatment.

Why should our government make it so easy for Wall Street to skip out on debt while requiring students, our future, to jump hurdles and hire attorneys to obtain financial relief?

Ms. Warren, a former Harvard law professor, understands the financial pressure faced by most Americans as she came from a working-class background, becoming a waitress at age 13 (after beginning as a babysitter at age 9). Ms. Warren has authored 9 books, including two best sellers.

Benefits of Bankruptcy Discharge

A bankruptcy discharge is one of the primary reasons that a person files for bankruptcy protection. We all should know this, but do we really know what the bankruptcy discharge allows us to do? This is the question that really needs to be answered. First, we need to discuss what the bankruptcy discharge is and then we can speak about the benefits.

The discharge can be defined in lawyer terms or in a way that non-lawyers can understand. A legal definition of the bankruptcy discharge is that the discharge creates a statutory permanent injunction against the collection of all dischargeable debts of the debtor. In non-legal terminology, the discharge prevents creditors, whose debts were properly included in the bankruptcy and legally discharged, from taking any or all steps to collect on their debt.

But the question still remains: What are the real benefits of the bankruptcy discharge? When a debtor obtains a bankruptcy discharge, it will take some time before their credit reports will be updated. It takes Equifax, Experian and TransUnion approximately ninety (90) days to make the corrections to the tradelines.

After the tradelines are corrected, you should notice a change in your credit score because your debt to income ratio has changed. It should be no surprise to anyone that after your bankruptcy discharges all or most of your debts that your debt to income ratio becomes more favorable.

The reason that you are working on your debt to income ratio is three-fold. First, if you are ever going to purchase another home or car, you will want to get the best interest rate and the most favorable loan terms.

Second, if you have to purchase insurance, your debt to income ratio may save you some money; and Third, if you have debts that you carried through the bankruptcy, you will want to make sure that they are being properly reported by the credit reporting agencies so that you will not encounter any problems later. I’ve seen people ignore their credit reports for up to ten years after the bankruptcy and then wonder why they are having trouble getting insurance or a car loan.

Here is how you can make it even better.

First: Set aside a time where you can review your finances on a weekly basis. this may take 5 – 10 minutes per week. Know which debts you owe and calendar the payments. For example, you know that your car payment and rent or mortgage are due on a certain date. After bankruptcy, it is critical that those debt be paid timely. Remember that you are rebuilding your credit and that any stumbles after bankruptcy are going to be with you for a long time.

Second: Make a list of any debts that survived the bankruptcy and create a plan of action to pay those debts off. For example, you may owe the IRS or some student loans. Make a plan to start paying those debts down. I don’t care if it is $10 a month. Create a plan and stick to it. If it makes more sense to pay off the car first, then great, focus on the car payment until it is gone.

Third: Make a plan to revisit your credit reports annually. In the past I’ve spoken about pulling a credit report every 4 months. The reason I say this is because you get one free credit report each year from each of the three biggest credit reporting companies. Use the free pulls to your advantage. Check them thoroughly to make sure everything is being reported properly. This is only once every four months, so it will not take a huge chunk of your time or energy. Look at each and every detail of the credit report. I always ask myself: Would I loan this guy money knowing xyz?

Fourth: You may want to get a secured credit card or gas station credit card. Tread lightly here. If you do not think you will be able to control yourself, then do not even apply for a credit card, stick with your debit card. However, if you do decide that this step is necessary, do your homework and make sure that you are making the proper decision on the right credit card for your needs.

Fifth: Be extra careful this time by creating an emergency fund. This way, if you ever run into an unexpected problem, you can tap the emergency fund and save your credit report from being blemished.

ed businesses. Guy said there were at least eight filings in recent weeks, which he said was "very unusual."

Five years ago, Plantation, Fla.-based bankruptcy attorney David Langley didn't have a single doctor as a client. Since then he's handled at least sixbankruptcy cases involving doctors. Two current clients -- an orthopedic surgeon and an OB/GYN -- also are in bankruptcy.

None of his physician clients had malpractice lawsuits that landed them in dire financial straits. All are "top-notch doctors," he said.

The weak economy has taken a toll on doctors' revenue, as consumers cut back on office visits and lucrative elective procedures, said Guy, a bankruptcy attorney in Nashville with Frost Brown Todd LLC.

Doctors also blame shrinking insurance reimbursements, changing regulations, and the rising costs of malpractice insurance, drugs and other business necessities for making it harder to keep their practices afloat.

Oncologist Dr. Dennis Morgan had a profitable solo practice in Enfield, Conn., for years. Revenues began to fall, he said, when reimbursements for treatment and drugs to oncologists started shrinking. He made cutbacks, but he began having trouble meeting expenses, and his business debt grew. Critical chemotherapy drug and medical supplies providers "eventually cut me off," Morgan said.

In June 2011, his practice, in a medically underserved area, filed for bankruptcy. It had hundreds of chemotherapy patients at the time.

For the next two years, his role became "that of a captain of a sinking ship managing the allocation of life boats until rescue arrived," he said. He redirected patients to other doctors and area hospitals. Early last year, he stopped practicing medicine.

Having a cancer practice close can be "debilitating" to a community, said Morgan. "If you have to travel one or two hours to get treatment and you have no one to go with you, it becomes a matter of getting care or not getting care," he said.

Liberty Medical Files for Chapter 11 Bankruptcy

By Phil Milford & Sophia Pearson - Feb 15, 2013 1:47 PM PT

Liberty Medical Supply Inc. and affiliates that provide products and services for people with diabetes and other ailments filed for Chapter 11 bankruptcy court protection amid pressure from creditors.

The Port St. Lucie, Florida-based company listed assets and debts of as much as $500 million each in papers filed today in Wilmington, Delaware.

“Several unexpected events” including disputes with tax authorities and the Center for Medicare and Medicaid Services, led to the filing, said Frank A. Harvey, Liberty chief executive officer, in an e-mailed statement.

Among the largest unsecured creditors listed in court papers were CGS Administrators of Nashville, Tennessee, owed $137 million, and Abbott Laboratories of Abbott Park, Illinois, owed more than $5 million.

“Liberty continues to focus on our critical mission to positively impact the lives of our patients” by helping to manage their health, Harvey said.

The case is In re Liberty Medical Supply Inc., 13-10268, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Irvine-based power wholesaler files Chapter 11

The Associated Press

Power wholesaler Edison Mission Energy and its Chicago-based subsidiary Midwest Generation say their bankruptcy filing will have no immediate effect on jobs at the companies.

Through its subsidiaries, Edison Mission Energy, owned by the California utility Edison International, owns or leases more than 40 power plants in California, Pennsylvania, Iowa, Illinois and other states.

Company president Pedro Pizarro said the companies hope to emerge from bankruptcy as a separate company independent of Edison International.

"This is an important first step in the process to reduce our debt, enhance our liquidity profile and position EME for continued operation and future success while preserving our ability to generate power safely and reliably at our electric facilities across the country," he said in a printed news release.

"Throughout this process, business operations will continue in the normal course," the news release continued, "and we will continue to support our customers, suppliers and employees."

California Bankruptcy Exemptions Increase as of January 2013

Some bankruptcy exemptions are higher in California as a result of California Assembly Bill AB-929. This bill was approved by the governor and filed with the Secretary of State on September 27, 2012. This means that more of your property can be protected when you file for bankruptcy. California has two exemption statutes. The first exemption statute has a generous wild card exemption, Section 703.140 of the Code of Civil Procedure, and the second exemption statute has a generous homestead exemption, Section 704.730 of the Code of Civil Procedure. Your bankruptcy attorney cannot use both in a bankruptcy petition. California has opted out of using the federal exemption statutes so those are unavailable for people filing for bankruptcy in California.

Here are some of the changes in the exemption statutes as of January 1, 2013:

Section 703.140 of the Code of Civil Procedure:

• $24,060 in homestead or burial plot ($22,075 previously)• $25,340 wildcard exemption. This consists of $1,280 plus any unused portion of the $24,060 homestead or burial plot exemption. ($23,250 previously)• $4,800 in one or more motor vehicles ($3,525 for ONE motor vehicle previously)• $600 in any single household item ($550 previously)• $7,175 professional books or tools of trade ($2,200 previously)• $12,860 dividend or interest under unmatured life insurance contract ($11,800 previously)• $24,060 personal injury payments ($22,075 previously but this did not include pain and suffering compensation)

Section 704.730 of the Code of Civil Procedure:

Homestead exemptions provided to a homeowner would be one of the following:1) $75,000 unless you are a person described in (2) or (3) below.2) $100,000 if you are a member of a family unit where one or more members of the family do not have an interest in the homestead or whose only interest is a community property interest3) $175,000 ($150,000 previously) if you are:a. 65 years of age or olderb. physically or mentally disabled and as a result cannot workc. 55 years or older with gross annual income of not more than $25,000 (single) or $35,000 (married) and there is an attempted involuntary sale ($15,000 if single and $20,000 if married previously)

Additionally, on April 1, 2013, (and every three years thereafter) the Judicial Council is required to submit adjusted homestead exemptions based on the change in the annual California Consumer Price Index to the Legislature. The increases will not be in effect until they are approved by the Legislature. This will tie the homestead exemptions to inflation and the rising cost of home ownership.

Atari SA’s U.S.-based video-game- making businesses filed for bankruptcy protection in Manhattan with the intention of separating from the unprofitable French parent and seeking independent funding.

New York-based Atari Inc., maker of video games “Pong” and “Asteroids,” as well as affiliates Atari Interactive Inc., Humongous Inc. and California U.S. Holdings Inc., asked to be jointly administered in filings yesterday in U.S. Bankruptcy Court, according to a statement

Within the next 90 to 120 days, the companies expect to effectuate a sale of all, or substantially all, of their assets,” in a free and clear sale under the U.S. bankruptcy laws, or confirm reorganization plans that “accomplish substantially the same result,” according to the statement.

‘Significant Loss’

The move to separate the U.S. business comes after the parent company Atari said in December it was strained for cash. The French parent, which hasn’t made a profit since 1999 despite asset sales and restructuring, forecast a “significant loss” in 2012-2013, and said it would weigh all means of raising cash and had been talking to potential investors.

According to its Chapter 11 petition, Atari owes $10 million to $50 million to at least 200 creditors and possibly as many as 999. It reported assets of $1 million to $10 million.

“The Chapter 11 process constitutes the most strategic option for Atari’s U.S. operations, as they look to preserve their inherent value and unlock revenue potential unrealized while under the control of Atari SA (ATA),” according to yesterday’s statement. “During this period, the company expects to conduct its normal business operations.”

The corporate parent issued a separate, later statement saying it was seeking related relief under the laws of France.

Shares Fall

Atari fell as much as 5.6 percent to 84 centimes in Paris trading before closing yesterday at 86 centimes, down nearly 3.4 percent. The company has a market value of about 25.4 million euros ($33.8 million), a drop of about half over the past year.

The U.S. companies are seeking approval to obtain $5.25 million in debtor-in-possession financing from funds managed by New York-based Tenor Capital Management, according to the earlier statement.

Atari also requested court permission to pay pre-filing wages and benefits to its 48 employees, four of whom are paid by the hour, the remainder of whom are salaried. Average gross semi-monthly payroll is $258,600, according to court documents. As of its bankruptcy, about $90,000 of those wages and salaries remain unpaid, according to the filing.

The company also asked for permission to pay prepetition claims of “critical” vendors and for other interim relief.

AUSTIN, Texas (AP) — A fourth Texas high-tech startup that received taxpayer dollars through Gov. Rick Perry's signature economic development fund has filed for bankruptcy in the $194 million portfolio's biggest bust yet.

The collapse of bioenergy producer Terrabon Inc., which was awarded $2.75 million in 2010 and was backed by large Perry political donors, raises questions about whether the state's Emerging Technology Fund launched in 2006 could now be worth less than what taxpayers have put into it.

Terrabon is the fund's second bankruptcy in the past four months, losses that severely cut into state estimates that the fund has so far delivered a $4.5 million return on investment.

The state's venture capital-like fund has raised concerns about accountability and transparency, including a critical report from the state auditor's office last year. Perry's political opponents have also hammered him over ties between campaign contributors and fund recipients.

Terrabon's bankruptcy, which was filed in a Houston federal court in September, is the tech fund's biggest of to date and brings the total losses of four failed investments to $5.25 million. In the fund's 2012 annual report released in January, Perry's office estimated that the portfolio's 133 investments were worth $4.5 million more than what the state had handed out.

When first asked by The Associated Press about the fund's four bankruptcies apparently wiping out the gains entirely, Perry spokeswoman Lucy Nashed said the annual report was outdated and argued the fund's value could have increased. She later amended her comment, saying the January report factored in the first two companies to go under in 2010, in what was a combined $2.25 million loss.

But the fund's current financial health remains unclear. Nashed said new figures are not expected until January, and further defended the fund by pointing to $592 million that the startups have collected from private investors.

"Nobody expected that there wouldn't be some companies that didn't make it. This type of fund will always have companies like that," Nashed said. "But I think the amount of money that we're bringing in from outside funding and the increase in the state's investment value is significant."

The Associated Press learned of the loss and the tech fund reaching what could be a tipping point in profitability by independently analyzing bankruptcy filings and state records.

In May, Austin-based NanoTailor Inc. folded two years after receiving $250,000, which was one of the fund's smallest risks. Terrabon was among the fund's biggest investments and flashed a higher profile, in no small part thanks to Perry.

He twice held public events with Terrabon executives trumpeting the company's potential to develop renewable fuels from waste and help steer the nation toward energy independence. The first was for the 2008 groundbreaking of the company's $2.6 million facility near the Texas A&M University campus. The second event happened two years later at a Terrabon-designed water treatment plant in Laredo that used technology hailed as the first of its kind.

"If everything here at Terrabon goes as planned, I believe you'll be making a difference that will be felt all around the world," Perry said at the groundbreaking ceremony.

That research facility is now being liquidated as part of a fire sale along with office furniture and lab equipment, according to the company's Chapter 7 bankruptcy filings. The Laredo plant ceased operation a year after going online. City officials said the unit was only able to purify less than half of the 50,000 gallons of water a day the project originally promised.

Mark Holtzapple, the chief inventor behind Terrabon's technologies, told The Associated Press that the startup was abruptly forced to fold after Houston-based Waste Management Inc. stopped pouring money into it this summer during a cost-cutting restructuring in which the trash and recycling company also eliminated about 700 jobs.

Waste Management was the company's biggest shareholder, with 18 percent in preferred stock, according to court records. Terrabon also had three other stakeholders that owned 10 percent or more of its equity interests: the state, the company's co-founder, David Carrabba, and Valerie Sarofim, a Houston socialite formerly married to the son of billionaire investor Fayez Sarofim.

Holtzapple, a chemical engineering professor at Texas A&M, said Terrabon had been making significant strides but didn't have enough cash on hand to survive the financial blow when Waste Management cut the cord.

Terrabon filed for bankruptcy listing about $372,000 in assets and nearly $21 million in debt.

"Terrabon's bankruptcy had nothing to do with their technology or management," Holtzapple said. "They are simply a victim of larger forces acting on them."

Critics have questioned why the state invested any money in Terrabon. It's among a handful of tech fund recipients with ties to campaign donors of Perry, who has repeatedly denied that politics influence the funding process. The final say on whether a company receives a taxpayer investment is made by Perry, the lieutenant governor and the House speaker.

One of Terrabon's backers is Texas A&M regent Phil Adams, who was appointed to that job by Perry and who has contributed more than $300,000 to the governor's campaign. On his state financial disclosure form filed in 2010, Adams stated that he received between $10,000 and $24,000 in interest, dividends or other income sources from Terrabon.

Carrabba has given at least $30,000 to Perry. He and Adams have insisted that their financial support for Perry was in no way related to the state's investment in Terrabon.

Terrabon's award was more than the combined amount given to the tech fund's three other companies that went on to declare bankruptcy. Thrombovision Inc. was awarded $1.5 million before shuttering in 2010, the same year that StarVision Technologies ($750,000) also folded.

Holtzapple said Terrabon's work could soon be revived by outside investors trying to purchase the company's assets but declined to name them.

Holtzapple described the company's steep debt-to-asset ratio as not unusual for a startup. He said he believed a "herd mentality" in the investor community no longer made biofuel companies like Terrabon so sought-after.

"We keep jumping form one hot thing to another. It's not done in any reasoned way that I can figure out," he said. "Terrabon just got caught up in all of it."

U.S. BUSINESS BANKRUPTCIES FALL 22% SO FAR IN 2012

from: Bloomberg.com

TOTAL BANKRUPTCY FILINGS DOWN 14 PERCENT THROUGH THREE QUARTERS OF 2012, COMMERCIAL FILINGS DOWN 22 PERCENT*

*October 3, 2012, Alexandria, Va*.*—* Total bankruptcy filings totaled 921,219 nationwide during the first nine months of 2012 (Jan. 1-September 30), a 14 percent decrease from the 1,073,021 total filings during the same period a year ago, according to data provided by Epiq Systems, Inc. The 876,469 total noncommercial filings through three quarters of 2012 represented a 14 percent drop from the noncommercial filing total of 1,015,408 through the first three quarters of 2011. Total commercial filings during the first nine months of the year were 44,750, representing a 22 percent decrease from the 57,613 filings during the same period in 2011. Chapter 11 filings also fell during the first nine months of 2012 as the 5,889 filings represented an 11 percent decrease from the 6,627 chapter 11 filings during the first nine months of 2011.

“We remain on pace for the lowest total bankruptcies since before the financial crisis in 2008,” said ABI Executive Director *Samuel J. Gerdano*.“Sustained low interest rates and weak consumer spending will continue to slow bankruptcies through the end of 2012.”

The 87,492 total bankruptcy filings for the month of September represented a 21 percent decrease compared to the 110,410 filings in September 2011. The 83,471 total noncommercial filings for September represented a 20 percent drop from the September 2011 noncommercial filing total of 104,638. Total commercial filings for September 2012 were 4,021, representing a 30 percent decrease from the 5,772 filings during the same period in 2011. Chapter 11 filings registered a 25 percent drop as the 693 chapter 11 filings in September 2011 fell to 523 in September 2012.

The average nationwide per capita bankruptcy-filing rate for the first nine calendar months of 2012 (Jan. 1-September 30) decreased to 3.97 (total filings per 1,000 per population) from the 4.04 rate for the first eight months of the year, and the average total filings per day in September 2012 was 2,916, a 21 percent decrease from the 3,680 total daily filings in September 2011. States with the highest per capita filing rate (total filings per 1,000 population) through the first nine months of 2012 were:

1. Tennessee (6.98)

2. Nevada (6.84)

3. Georgia (6.51)

4. Utah (5.99)

5. Alabama (5.92)

San Bernardino votes to file for bankruptcy protection

L.A. Times

7/10/12

By: Phil Willon in San Bernardino

The San Bernardino City Council votes to file for bankruptcy. Facing a $45-million budget shortfall and the prospect of not being able to pay city workers, the panel Tuesday voted to file municipal bankruptcy, the third California city to do so in recent weeks.

The vote came shortly after the interim city manager recommended seeking bankruptcy protection, saying the city may not be able to make payroll over the next three months. "We have an immediate cash flow issue," Andrea Miller told the mayor and seven-member council.

The dire fiscal situation remains even after the city negotiated $10 million in concessions from employees and slashed the workforce by 20% over the last four years.

If San Bernardino declares bankruptcy, it would be the third California city to do so in recent weeks, joining Stockton and Mammoth Lakes. The council called special back-to-back budget meetings Tuesday and Wednesday, which are expected to attract a packed house at City Hall.

A common misconception about bankruptcy is that it completely destroys your credit for 10 years. This is simply not true.

Here, two completely different concepts are being confused with each other. The fact that bankruptcy is reported on your credit report for 10 years (7 years for Chapter 13) is getting mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing. In fact, many of my clients credit scores actually improve after they file!

Heres why. By the time you need to make an appointment to see a bankruptcy attorney, your credit is usually pretty trashed, messed up and maxed out. This being the case, you have no credit for bankruptcy to hurt. As I usually tell clients, You cant wet a river.

Even if you have excellent credit when you file, as some of my clients do, the longer that passes since the filing date, the less important the filing itself is to potential lenders. Of far more importance is what have you done for me latelythat is, what your recent post-bankruptcy income and credit shows about your ability to pay.

This is why, as I mentioned in Myth #5, in my experience, if you have not re-established good credit within two to four years after you receive your bankruptcy discharge, most likely it has nothing to do with the fact that you filed bankruptcyand it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy. Instead, it is likely to do with your experiences after you file for bankruptcymissed payments on new debt or a post-bankruptcy payment default are the two biggest killers of post-bankruptcy credit.

Stockton moves another step closer to bankruptcy

L.A. Times

June 6, 2012|12:06pm

The city of Stockton moved a step closer to becoming the nation's largest city to declare bankruptcy, authorizing the city manager to file for Chapter 9 protection from creditors.

A 6-1 vote after a tense 4 1/2-hour public meeting Tuesday directed City Manager Bob Deis to file if the current mediation process fails. On March 27, Stockton stopped payments to creditors and entered a confidential mediation process under AB 506, a California law designed to slow municipal bankruptcies by forcing all parties to the table. Under this law, the bargaining period has a 60-day limit, unless all parties agree to extend it for another 30 days.

The city and its creditors agreed to extend negotiations through June 25.

Deis said he wants to be ready to go to bankruptcy court the next day if talks fail.

A statement released by the city described the financial situation as "dire" and noted that the city will face a $26-million deficit by July 1.

The port city of 290,000 has one of the highest home-foreclosure rates in the nation, as well as a high rate of violent crime. City Hall also is in an ongoing struggle with police and city workers unions over pensions. It has already cut many city services and is selling off properties such as city parking garages.

"It's time to stop the chaos and degradation of this organization and fix the structural imbalance,"

Deis said in a statement. "We have to start the road to recovery."

Bankruptcy lawyers resist scrutiny over fees

By David Ingram | Reuters

06/04/2012

WASHINGTON (Reuters) - The bankruptcy lawyers who handle the biggest U.S. corporate restructurings responded with hostility on Monday to new scrutiny of their fees, which can reach hundreds of millions of dollars at the expense of creditors.

The lawyers told officials of the U.S. Justice Department they do not want to keep a budget, they do not want to disclose details of their billing practices and they do not want to justify expenses under $500.

The lawyers tried to make their case on the 7th floor of Washington's Justice Department at a rare public meeting called to consider whether bankruptcy fees are inflated, unjustified or wasteful.

The airing of ideas took place amid tales of limousine rides and clothing put on expense accounts, and in the face of questions about what exactly lawyers do to bill at rates up to and above $1,000 an hour.

In one recent example, during the two-and-a-half-year restructuring of Lehman Brothers, payments to the law firm Weil Gotshal & Manges totaled $383 million, according to a securities filing in March.

Legal fees are at issue also in the bankruptcy of MF Global Holdings Inc, whose estate has paid $17 million to lawyers in four months, according to court filings on Monday.

Bankruptcy lawyers bill at higher rates than lawyers in most other specialties, although the reason is in dispute. The top billers say the market values their experience and knowledge in restructuring companies such as Chrysler Group LLC. Critics say it is because managers of bankrupt companies are less aggressive than other clients in asking for discounts.

The Justice Department's U.S. Trustee Program is considering changes designed to impose what it considers financial discipline.

INACCURATE DATA

At Monday's meeting, lawyer Richard Levin said the data that the U.S. Trustee Program wanted to collect about hourly rates would be useless. He said legal billing records often were inaccurate because he and colleagues forgot to write down time they spent on cases.

"Lawyers are notoriously bad at administrative tasks, including putting data in properly," said Levin, a partner at Cravath, Swaine & Moore in New York and vice chairman of trade group the National Bankruptcy Conference.

In bankruptcy cases, lawyers' fees are at the mercy of the bankruptcy courts. Lawyers submit applications for compensation and objections may come from creditors, many of whom lose out in a bankruptcy, or from trustees, who are federal officials.

The final decision on fees is up to a bankruptcy judge, guided by what U.S. law says is "necessary" and "reasonable."

The U.S. Trustee Program wants to know whether law firms inflate their rates in bankruptcy cases for example, by using more lawyers than necessary, or by dragging their feet knowing they are unlikely to be challenged by the court.

"It cannot possibly be, can it, that everyone works through budgets except bankruptcy lawyers?" asked Clifford White, director of the Executive Office of U.S. Trustees.

Damian Schaible, one of five private lawyers who answered questions in person from White and his staff, said the process of budgeting was often useless, especially in the context of a legal team working on an unpredictable bankruptcy.

"How can anyone budget in the real world what they're going to spend?" asked Schaible, a partner at Davis Polk & Wardwell in New York, dismissing budgets also in personal bankruptcies.

LARGE FIRMS' DNA

Big law firms, which can throw scores of lawyers at a single case, cannot help but splurge on a major bankruptcy, said Albert Togut, managing partner of a boutique law firm that specializes in bankruptcy.

"It's in their DNA that, when they approach a project, they bring every resource at their disposal to the project," he said.

He urged the trustee staff to make a change that would encourage greater use of small, specialized law firms.

There has been a disproportionate number of major bankruptcy cases in recent years including Lehman, General Motors, Washington Mutual and the proposed new scrutiny from the U.S. Trustee Program is aimed at big cases, those with combined assets and liabilities of $50 million or more.

But there is disagreement even on that threshold. A group of 118 law firms opposed to the trustee proposal wants to set the line at $250 million.

A lawyer was scheduled to speak on behalf of those 118 firms on Monday, but he did not appear. D.J. "Jan" Baker of Latham & Watkins had, in written comments, assailed the trustee proposal as illegal and wasteful.

Baker preferred to meet in private, White said, adding that he was disappointed by the absence.

"Private meetings do not afford the level of transparency that today's meeting will provide," he said early on.

Storied law firm Dewey & LeBoeuf which once advised the Los Angeles Dodgers on their restructuring is itself filing for Chapter 11 protection as it prepares to liquidate.

Its a far fall for the New York firm, which in its heyday employed a retinue of more than a thousand attorneys, commanded massive salaries for partners and kept offices in Abu Dhabi, Moscow, Hong Kong and elsewhere.

Now, weighed down by debt, Dewey & LeBoeuf is looking to preserve assets and wind down its business. The company hopes to keep a skeleton crew of about 90 employees to help over the next few months (theres already been a recent exodus of 160 of the firms 300 partners).

In the meantime, the firm will be operating on a budget, according to a bankruptcy court filing Monday evening in Manhattan. As it closes its other domestic and foreign offices, Dewey & LeBoeuf will sharply reduce the size of its New York office and is working with landlords to remove phones, computers and furniture.

The firm has some $225 million in debt. It, and similar big-name law firms, have seen competition from upstarts such as LegalZoom and other options that make the legal industry more accessible to the average Joe.

Dewey & LeBoeufs London and Paris offices, which are operated through a separate UK entity, are following broadly the same approach. The firm was formed in 2007 when the Dewey Ballantine firm which first launched in 1909 merged with the LeBoeuf, Lamb, Greene & MacRae firm.

Unfortunately, DL was formed at the onset of one of the worst economic downturns in U.S. history, according to one of the bankruptcy filings. These negative economic conditions, combined with the Firms rapid growth and partnership compensation arrangements, created a situation where the cash flow was insufficient to cover capital expenses and full compensation expectations.

Growing case law suggests that debtors should hope the bankruptcy court does not approve their car reaffirmation agreement.

By: Cathy Moran - California Bankruptcy Attorney

05/06/2012

If youve agreed to reaffirm, and essentially waive the bankruptcy discharge as to the car loan in order to keep the car, why would you want the court to find that the car loan represents a hardship to you or your family? Because pay and drive lives on if you are willing to reaffirm, even though the reaffirmation agreement is disapproved, according to a growing number of bankruptcy judges.

Reaffirmation before reform

Before BAPCPA became law in 2005, the Bankruptcy Code included a provision that said that merely filing bankruptcy was not a default on a loan if you were otherwise performing. That is, the ipso facto clause in the contract that made filing bankruptcy an event of default wasnt enforceable.

So, after a bankruptcy filing, the debtor could simply continue to make the payments on time and keep the car. If, in the future, he couldnt pay, the lender was limited to picking up the car. No deficiency judgment was available to the lender. Bankruptcy lawyers called this keep and pay , or pay and drive.

Car buyers squeezed by new law

Then the lobbyists for the car companies got their goodies inserted in bankruptcy reform, including removing the bankruptcy isnt a default provision. So, someone who was absolutely current on their car payments, but filed bankruptcy to deal with some other debt issue had just defaulted on the car loan, and was in danger of having the car repossessed, unless they reaffirmed the loan.

Reaffirmation agreements were historically seen as points of possible abuse and the Code provided that judges must oversee whether the debtor was making a sound and well informed decision when he agreed to resume the liability for a debt. In the car context, reaffirming a car loan meant that, if the debtor later on couldnt make the payments agreed upon, the lender could not only repossess the car, but also sue the debtor for the difference between what the car brought at auction and the contract price.

Between the right to a deficiency judgment and the fact that lenders could insist that a reaffirmation agreement contain the same expensive terms as the original agreement, debtors were over a barrel after BAPCPA.

Courts find the old route

Bankruptcy judges were called on to review reaffirmation agreements and the debtors budget. They were to determine if the debtor had enough income to make payments under the reaffirmed car loan and cover all the other necessary expenses of family living.

If the numbers didnt pencil out, lots of judges held that they could not find that reaffirming was in the debtors best interest. (Theres a story there, too, for how does a judge think a debtor just emerging from bankruptcy is going to replace a repossessed car, or get to work in most places without one?)

But judges read the provisions of the bankruptcy reform legislation and said, All the law requires the debtor to do it to timely sign and file the reaffirmation agreement. If he does that, and the court disapproves the agreement, the lender cant repossess the car so long as the debtor makes the payments on time and keeps the car insured.

Pay and drive lives on if the debtor goes through the motions of reaffirmation!

Nadya Suleman Files Chapter 7 Bankruptcy

05/01/2012

In filing for bankruptcy protection, "Octomom" Nadya Suleman said in court papers that her debts could approach $1 million. Suleman filed for personal bankruptcy protection in Orange County Superior Court on Monday.

In court documents reviewed by the Orange County Register, Suleman said she had $50,000 in assets and up to $1 million in debts. She reported she owes more than $30,000 in back payments on her home.

"I have had to make some very difficult decisions this year, and filing Chapter 7 was one of them," Suleman said in a statement released by her spokeswoman. "But I have to do what is best for my children, and I need a fresh start."

At the same time, her La Habra home could be auctioned off. Suleman and her 14 children could face eviction if the house is sold, which would compound her problems after recent allegations she had been neglecting her children while spending hundreds of dollars on herself for services such as Brazilian blowouts.

Officers from the La Habra Police Department accompanied social workers to Suleman's home last Tuesday after receiving a complaint, which said there was only one working toilet in the house and the children had to use portable training toilets in their bedrooms.

The complaint also said the children appeared to be malnourished and unclean, and Suleman locked them in their rooms while she attended to personal matters.

The social workers spent about two hours at the house and determined that the children were not in danger and should not be removed. The Orange County Department of Family and Children's Services continues to investigate.

Suleman gained worldwide attention in 2009 when she gave birth to octuplets and became instantly known as "Octomom."

CAN I Buy A HOUSE AFTER BANKRUPTCY?

After filing bankruptcy, you have no more debts.Youmay start to think about buying a home.

You will have two concerns:savings for down payment and your credit score.

To buy a home,you need to have a downpayment. So,spend the first year after filing bankruptcy focusing on your savings account.

Bankruptcy filing will affect your credit score negatively. However, you can increase your credit score and rebuild your credit by opening a credit card account and paying the total balance monthly on a timely basis.

You must continue to pay your debts on time. If youve got student loans or a car loan, make those payments on time, they would be reflected on your credit report and help increase your credit score. Within two years of bankruptcy filing, and by making timely paymenst on your accounts after bankruptcy your creditworthiness will be reestablishedand willhelp you in qualifying for a home mortgage.

(Reuters) - The Los Angeles Dodgers were cleared on Tuesday to borrow $60 million to make payroll, but the team spent its first full day in bankruptcy battling with Major League Baseball.

The team needs the money to pay salaries, including those of its players, while it tries to sort out its long-term finances against the backdrop of team owner Frank McCourt's bitter divorce and the demands of the league.

The Dodgers on Monday became the sport's third team in three years to file for bankruptcy. But unlike the Chicago Cubs and Texas Rangers before it, the team did so with the league as an adversary, not an ally.

The bankruptcy apparently caught off guard the league and McCourt's former wife, Jamie, who is fighting a California court battle for half of her ex-husband's stake in the team.

"This was sprung on all of us," attorney Laura Davis Jones, who represents Jamie McCourt, told the U.S. Bankruptcy Court in Wilmington, Delaware.

The bankruptcy court judge said he would approve the team's request to borrow $60 million. The Dodgers will return to court on July 20 to seek approval to borrow up to an additional $90 million.

The Dodgers are incorporated in Delaware, whose bankruptcy court has a reputation for being friendly to debtors. The hearing in one of the courthouse's smallest courtrooms drew dozens of dark-suited attorneys, and kicked off with Judge Kevin Gross announcing: "Batter up."

The teamed has blamed Major League Baseball for the bankruptcy by rejecting a television deal that would have provided an urgent injection of cash as millions of dollars in debt and deferred compensation came due later this week.

An attorney for the Dodgers told the judge that the team and league were "at loggerheads," which drew a swift rebuttal from the league's attorney.

"Nothing could be further from the truth. Major League Baseball views the Dodgers as one of its cherished crown jewels," said league attorney Tom Lauria. "If there is anyone we are at loggerheads with, it is Mr. McCourt."

The league accused McCourt of "having siphoned off well over $100 million of club revenues" and bringing the team to the brink of missing payroll, according to court papers filed on Tuesday. A spokesman for the Dodgers did not immediately respond to a request for a comment.

On June 20, the league vetoed the Dodgers' proposed $3 billion, 17-year television contract with News Corp's Fox Broadcasting Co, saying it ran contrary to the best interests of the team, the game and fans.

The Dodgers plan a second attempt to sell the TV rights in bankruptcy, according to court papers.

The bankruptcy hearing was put on hold while attorneys for the league and the team spent 90 minutes in a conference room to work out differences over the emergency $60 million loan to be provided by a unit of JPMorgan Chase & Co

The lender has agreed to provide a total of up to $150 million.

Providers of bankruptcy loans often are able to use the loans to gain leverage over bankrupt companies, and the league offered to provide its own loan at a lower rate of interest than the 10 percent the Dodgers agreed to pay.

Lawyers for the Dodgers told the judge that the team's financial problems are short term.

The team has payroll to meet this week, as well as a one-time $10.5 million deferred compensation payment. It also is required to set aside $18 million under its collective bargaining agreement with the baseball players union.

Unlike most bankrupt companies, the team's assets exceed its liabilities, which should give the Dodgers room for financial maneuvering. But the McCourts' divorce battle further complicates the bankruptcy, as does the team's soured relations with Major League Baseball.

Forbes magazine in March ranked the Dodgers as baseball's third-most valuable team, worth $800 million -- more than twice what McCourt paid. Only the New York Yankees and Boston Red Sox are worth more, Forbes said.

The case is In re: Los Angeles Dodgers LLC, U.S. Bankruptcy Court, District of Delaware, No. 11-12010.

(Reporting by Tom Hals; editing by Carol Bishopric)

(Reuters) - The Los Angeles Dodgers filed for bankruptcy protection, blaming Major League Baseball for rejecting a television deal that would have given the storied baseball team an urgent injection of cash.

The filing marks a dramatic attempt by Dodgers owner Frank McCourt, who is embroiled in a bitter divorce from his ex-wife Jamie, to prevent the league and MLB Commissioner Bud Selig from seizing the team, which McCourt bought in 2004.

In a court filing, the team said it had been "on the verge of running out of cash" but that the Chapter 11 filing will allow it to meet payroll, sign players, pay vendors and continue playing baseball.

"It is becoming rather clear and likely inevitable that Frank McCourt will end up selling part or all of the franchise," said David Carter, a sports business professor at the University of Southern California. "I have to believe the back-and-forth between him and Major League Baseball leaves them where they won't be able to coexist much longer."

Selig responded to the bankruptcy filing with a statement blaming the Dodgers' financial woes on McCourt's excessive debt and his diversion of club assets to address personal needs.

"My goal from the outset has been to ensure that the Dodgers are being operated properly now and will be guided appropriately in the future for their millions of fans," the commissioner said.

"The ideas and proposals that I have been asked to consider have not been consistent with the best interests of Baseball. The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise."

On June 20, the league vetoed the Dodgers' proposed $3 billion, 17-year television contract with News Corp's Fox Broadcasting Co, saying it ran contrary to the best interests of the team, the game and fans.

The deal promised an upfront payment to the Dodgers of $385 million, but Selig has criticized the proposed use of part of that money to fund McCourt's divorce.

McCourt has said the payment was crucial to the team's health. According to a court filing, the Dodgers need to pay or set aside more than $28 million for payroll by July 1.

"We brought the commissioner a media rights deal that would have solved the cash flow challenge I presented to him a year ago," McCourt said in a statement. "Yet he's turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today."

Forbes magazine in March ranked the Dodgers as baseball's third-most valuable team, worth $800 million. That is more than twice what McCourt paid, and trails only the New York Yankees and Boston Red Sox, it said.

NO WORLD SERIES SINCE 1988

Monday's filing punctuates a stunning fall for one of baseball's marquee teams, whose roots date to 1884 when it played in New York as the Brooklyn Atlantics.

The team became the Dodgers permanently in 1932, and broke Major League Baseball's racial barrier when Jackie Robinson began playing in 1947. It began playing in Los Angeles in 1958 and has called Dodger Stadium home since 1962.

This year, the team has a 35-44 record and has seen home attendance decline sharply. The Dodgers have won six World Series championships, but none since 1988.

A call to the office of Los Angeles Mayor Antonio Villaraigosa was not returned.

Baseball took over day-to-day control of the Dodgers in April amid worries about team finances, and security concerns that followed a brutal Opening Day beating of San Francisco Giants fan Bryan Stow in the Dodger Stadium parking lot.

"The filing preserves the status quo," said Jack Williams, a professor at Georgia State University College of Law in Atlanta who specializes in sports law. "Major League Baseball will have a major, if not the predominant, voice in the ultimate ownership structure for the team."

Monday's filing comes less than a year after the Texas Rangers baseball team emerged from bankruptcy, owned by a group that includes Hall of Fame pitcher Nolan Ryan.

Another marquee franchise, the New York Mets, is also overloaded with debt, and its owners, Fred Wilpon and Saul Katz, face a $1 billion lawsuit by the trustee seeking money for victims of Bernard Madoff's Ponzi scheme.

The owners are in talks to sell part of that team to hedge fund manager David Einhorn for $200 million.

Other teams to file for bankruptcy in recent years include the Buffalo Sabres and Phoenix Coyotes of the National Hockey League.

MANNY RAMIREZ, ANDRUW JONES ARE CREDITORS

The Dodgers arranged a $150 million, one-year financing from lenders led by affiliates of JPMorgan Chase & Co's Highbridge Capital Management LLC, so the team can operate normally while in bankruptcy, court records show.

According to a court filing, the variable interest rate on the loan would be at least 10 percent, and the team could draw $60 million immediately and $90 million later.

The Dodgers' filing in the U.S. bankruptcy court in Delaware shows between $500 million and $1 billion of assets and between $100 million and $500 million of liabilities.

Four other related entities also filed for protection from creditors, including one that owns Dodger Stadium.

The Dodgers said the team's largest unsecured creditors include former outfielders Manny Ramirez and Andruw Jones, who are owed $21 million and $11.1 million, respectively.

Ramirez retired in April rather than accept a 100-game suspension for violating baseball's drug policy, after serving a 50-game suspension in 2009. Jones plays for the New York Yankees.

Los Angeles Superior Court Judge Scott Gordon scheduled a one-day trial in August to decide whether the Dodgers belong to Frank McCourt, or whether the McCourts should split the team.

The McCourts' lawyers on June 17 said the pair had resolved all issues in their divorce except for the Dodgers' ownership.

"The Dodgers have historically been one of the greatest brands in sports," he said. "Buyers may view this as a chance to buy in with the knowledge they can rehabilitate the brand, rebuild the fan base, and add to its value over time."

The case is In re: Los Angeles Dodgers LLC, U.S. Bankruptcy Court, District of Delaware, No. 11-12010.

(Writing by Jonathan Stempel; Editing by John Wallace)

1.5 million Americans filed for bankruptcy in 2010

By Jerry White 6 January 2011

The number of people in the US filing for bankruptcy rose by 9 percent last year to 1.53 million, as more working families fell victim to job losses, plunging home values and unforgiving creditors.

The figure was the highest since 2005 when changes in the bankruptcy laws making it more difficult and costly to file led to a sharp decline in the number of Americans seeking court protection. The recent spike in casesdespite the added costs and legal hurdlesis indicative of just how desperate large segments of the American population are despite the official claims of an economic recovery.

Over the last three yearsas the economic recession and 2008 crash took hold4 million consumers filed for bankruptcy, with last years numbers matching the record levels reached before 2005. While most filers earn less than $30,000 and lack a college degree, a growing percentage of families with incomes above $60,000 and college degrees are being forced into bankruptcy.

As tens of millions are finding it impossible to pay their bills, the corporations and banks are raking in record profits, top executives are pocketing huge payouts and the richest 2 percent of the population is celebrating the tax cut handed to them by Obama and the congressional Republicans.

Now, the debate in Washington is dominated by a drive to forge a bipartisan consensus to slash social spending, cut taxes and regulation on big business and reduce wages and benefits in order to make American corporations more competitive and profitable This only underscores the class chasm between the corporate-political elite and the masses of working people who are facing a social catastrophe.

The growth in personal insolvency last year was seen in virtually every part of the country, according to the American Bankruptcy Institute. The sharpest rise was in the Southwest and Southeast, with Nevada recording 15,000 filings per million, more than double the 6,600 filings per million recorded nationwide. The state has the nations highest unemployment rate and credit card and mortgage delinquency, and one in every 99 homes is in foreclosure, according to realtytrac.com.

After Nevada, Georgia and Tennessee had the highest filing rates, each with more than 10,000 filings per million, according to the report. The states with the highest year-to-year increase were Hawaii (22 percent), California (19 percent), Utah (19 percent) and Arizona (18 percent).

Families are being driven into bankruptcy after a spouse has lost a job or had their working hours cut, or a small business has gone under, according to local news reports. Mortgage payments and other bills became too much to handle, with families receiving 15 to 18 calls a day from creditors before they filed for court protection.

Tracy Compo of Tucson, Arizona told the Las Vegas Review-Journal troubles began three years ago when her husband could no longer get overtime at work. Efforts to get the bank to modify their loan failed and they were forced into foreclosure on their home. They tried to raise income by selling off possessionsjewelry, clothes and anything else to pay the billsbut credit card debt continued to mount, and in December they filed for bankruptcy in hopes of getting a new start.

Its very depressing, Compo, a 32-year-old mother of three, told the Review-Journal, Its degradinglike youve lost all sense of control. I hate it. Im embarrassed by it.

In Nevada, bankruptcy lawyers said business showed no signs of slowing, with one attorney saying he increased his staff by a third just to handle the demand. Its as busy as it was last year, and it is going to get even busier, Anthony DeLuca told the Las Vegas newspaper.

In South Florida personal bankruptcy filings rose by a staggering 40 percent, the Sun-Sentinel reported, with the number of cases in Palm Beach, Broward and Dade counties rising from 24,681 in 2009 to 34,579 in 2010. Local reports attribute the sharp rise to the pace of home foreclosures, joblessness in the statewhere the unemployment rate is 12 percentand a wave of business closures.

David Langley, a bankruptcy lawyer in Plantation, told the Sun-Sentinel that many of his cases involved clients who were in construction, real estate or related businesses and professions. There is a ripple effectthe little restaurant that was near the construction site or near some real estate firm ended up having to file for bankruptcy. Often, he said, he filed both personal bankruptcy and business bankruptcy for the owner.

Medical expenses are one of the biggest causes of personal bankruptcy, with a Harvard University study carried out before the economic downturn attributing 62 percent of all filings to health care debts. The study noted that 78 percent of those filing bankruptcy had medical insurance.

According to the Economic Policy Institute, family health insurance premiums more than doubled between 1999 and 2009, far outpacing workers earnings and overall inflation, as employers increasing dumped the costs of medical care on their workforces.

The sharp increase in long-term joblessnessthe most dire since the Great Depressionhas worsened the situation. More and more families are forced to rely on credit cards to pay for food, utilities and other basic necessities, in addition to picking up the cost of their health insurance.

Increasingly those who still have a job are facing wage cuts and being forced into part-time and temporary positions. In the past, home equity loansbased on the rising value of their homescould be gotten to offset the decline in income. These are no longer an option as homeowners owe far more than the dwindling value of their homes. The tightening of consumer credit has also pushed people over the edge, after they borrowed in an effort to prevent bankruptcy.

The crisis is affecting every demographic group. A 2010 study from the University of Michigan Law School, The Rise in Elder Bankruptcy Filings, found that those 65 and older are the fastest-growing segment of the US population seeking bankruptcy protection, owing a median $22,562 to credit card companies. The findings are both striking and ominous, says John Pottow, author of the study. While multiple factors, such as health problems and medical debts, contribute to elders' financial distress, the dominant force appears to be overwhelming burdens related to credit cards.

While the Obama administration has handed the Wall Street bankers trillions and the wealthy a massive tax cut, it has done nothing to provide relief to those losing their homes, income and life savings. A report last month by the Congressional Oversight Committee noted that the Treasury Departments Home Affordable Modification Program has produced negligible results. Only half a million mortgage holders got help to save their homes, at least temporarily, since the program began in March 2009. During that period nearly 4 million households received foreclosure notices with the Federal Reserve expecting another 4.25 million over the next two years.

The political establishmentdominated as it is by the representatives of the corporate and financial eliteis oblivious to the social catastrophe facing working people. Obamas vice president, Joe Biden, who received large donations from the credit card industry, was one of the most fervent Democratic supporters of the reactionary 2005 legislation, which made it more difficult for working class and middle-class families to escape their debt burdens, while awarding as much as $1 billion a year to creditors, mostly banks and credit card issuers.

Signing the bipartisan bill into lawjust a few short years before both parties gave Wall Street the largest handout in historyPresident Bush declared, America is a nation of personal responsibility, where people are expected to meet their obligations. If someone does not pay his or her debts, the rest of society ends up paying them.

Consumer debt is consistent with bankruptcy filings

Research by the Federal Reserve indicates that household debt is at a record high relative to disposable income. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated.Use this page to list news articles and press releases favorable to your business. Here you might add a brief introduction. To add a new article, click the "Add an Article" button below.

(Source: American Bankruptcy Institute)

TOTAL BANKRUPTCY FILINGS UP 11 PERCENT THROUGH FIRST NINE MONTHS OF 2010 WHILE BUSINESS FILINGS DECREASE

November 8, 2010 Alexandria, Va. The 1,222,589 total U.S. bankruptcies filed for the first nine months of 2010 (Jan. 1 Sept. 30) represented an 11 percent increase over the 1,100,035 cases filed over the same period in 2009, according to data released today by the Administrative Office of the U.S. Courts. Consumer filings totaled 1,179,573 for the first nine months of 2010 representing nearly a 12 percent increase over 1,054,525 filed during the same period in 2009. Bankruptcies have continued to increase since the 2005 amendments to the Bankruptcy Code.

As the economy looks to climb out of the recent recession, businesses and consumers continue to file for bankruptcy to regain their financial footing, said ABI Executive Director Samuel J. Gerdano. With unemployment hovering near 10 percent and access to credit remaining tight, total filings in 2010 will likely exceed 1.6 million.

The 43,016 business bankruptcies recorded during the first three quarters of 2010 (Jan. 1 Sept. 30) represented nearly a 6 percent drop from the 45,510 business filings during the same period in 2009. Business filings during the three-month period ending Sept. 30, 2010, totaled 13,957 filings, down 8 percent over the 15,177 business filings in 2009. Chapter 11 business filings decreased nearly 5 percent to 2,916 during the third quarter of 2010, compared to the 3,060 filings during the similar period in 2009. Chapter 7 business filings totaled 9,807 during the three-month period ending Sept. 30, 2010, representing a 9 percent decrease over the 10,798 filings during the same period in 2009.

The 1,596,355 total filings for the 12-month period ending Sept. 30, 2010, were up nearly 14 percent from the same period in 2009, which totaled 1,402,816. Nonbusiness filings for the 12-month period ending Sept. 30, 2010, totaled 1,538,033, an increase of 14 percent from the 1,344,095 total nonbusiness filings calculated over the same period in 2009. However, business filings decreased slightly for the 12-month period ending Sept. 30, 2010, as the 58,322 business filings were down nearly 1 percent from the 58,721 business petitions filed in the 12-month period ending Sept. 30, 2009.

The 1,146,511 total chapter 7 filings for the 12-month period ending Sept. 30, 2010, represent a 16 percent increase from the 989,227 filings from the same period in 2009. Total chapter 13 filings increased 9 percent to 434,839 in the 12-month period ending Sept. 30, 2010, from 398,210 in the same period last year. In addition, total chapter 12 filings nearly doubled, increasing 45 percent from 487 in 2009 to 707 in 2010. Total chapter 11 filings fell, however, decreasing nearly 4 percent to 14,191 in 2010 from 14,745 in 2009.

The 412,380 total U.S. bankruptcies filed during the third quarter of 2010 (July 1 Sept. 30) represented a 6 percent increase over the 388,485 cases filed over the same period in 2009. Consumer filings totaled 398,423 during the third quarter of 2010 (July 1-Sept. 30), representing a 7 percent increase over the 373,308 filed during the same period of 2009. Consumer chapter 7 filings during the 2010 third quarter totaled 280,006, an increase of 5 percent over the 2009 third quarter total of 265,721. Chapter 13 consumer filings also increased during the three-month period ending Sept. 30, 2010, with the 117,893 filings, representing an 10 percent increase over the 107,142 filings during the same period in 2009.

BUSINESS FILINGS for the 3-month period ending Sept. 30, 2010, totaled 13,957, down nearly 8 percent from the 15,177 bankruptcy business cases filed in the same period in 2009.

NON-BUSINESS FILINGS for the 3-month period ending Sept. 30, 2010, increased 7 percent from 373,308 in 2009 to 398,423 in 2010.

Study Finds Illness And Medical Bills Are The Root Cause of Majority Of U.S. Bankruptcies

Unemployment is high and retirement accounts have virtually disappeared for many folks in the wake of the current recession. Housing prices have plummeted, too. So it comes as no surprise that data just released by the Administrative Office of the U.S. Courts shows the total number of U.S. bankruptcies filed during the first three months of 2009 increased 34.5 percent over the same period in 2008. But what is surprising is a new Harvard study published in the August 2009 issue of The American Journal of Medicine which reveals financial woes starting hitting Americans even before the officially recognized economic downturn -- and the main culprit was illness and medical bills.

The results of the first-ever national random-sample survey of bankruptcy filers, conducted by researchers at Cambridge Hospital and Harvard Medical School, Harvard Law School and Ohio University, show that in 2007, 60% of all bankruptcies in the United States were driven by sickness and related medical bills. Moreover, the share of bankruptcies attributable to medical woes over the past few years has been on the upswing.

The investigators surveyed a random national sample of 2,314 bankruptcy filers in 2007, studied their court records and then interviewed 1,032 of these financially strapped people. Bankruptcies were designated as "medical" based on the stated reasons a person had for filing, income loss due to sickness and the amount of their medical bills they owed. By relying on identical definitions in both 2001 and 2007, the researchers concluded that the share of bankruptcies caused by medical problems had soared by almost 50 percent during those years. In fact, the chances a bankruptcy had a medical cause were 2.38 fold higher in 2007 than in 2001.

The results of the research revealed that a variety of circumstances pushed many middle-class Americans over the edge into bankruptcy, even when they had health Insurance. For example, 92 percent of the medically bankrupt ended up in that financial state due to high medical bills. And countless families who had health insurance were under-insured, leaving them responsible for thousands of dollars in medical bills they couldn't pay. In fact, out-of-pocket medical charges averaged just under $18,000 for those who had private insurance and yet went bankrupt due to medical expenses. Uninsured patients were faced with $26,971 in out-of-pocket expenses.

The study's authors point out that almost all insurance is linked to employment, so a medical illness can trigger both loss of a job and loss of health insurance coverage. Nationally, about a fourth of all companies cancel insurance coverage immediately when an employee suffers a disabling illness and another 25 percent cancel insurance within a year. Of course, losing a job due to the recession also usually means losing health insurance coverage.( Source: Natural News)

Number of Bankruptcy Cases Are Still On The Rise

October 2010

According to the National Bankruptcy Research Center the number of Bankruptcy filings in September were higher compared to the previous month, to a total of about 130,000. Because filings in August and September are usually steady, this statistic shows, an increase of about 4%. As compared to last year, filings for September were about 4% higher than for last September. Bankruptcy Filings for 2010 year to date are still about 11% higher than during the first three quarters of last year. To clarify, the bankruptcy filings in the first three quarters of 2009 were 35% higher than at the same point in 2008.

Across the United States, Bankruptcy filings this year to date amount to slightly more than 10000 filings per million households, 1 in every 98 households. Through the course of 2010 the number of bankruptcy cases filed have become increasingly disparate throughout the United States. The highest number of bankruptcy cases filed are concentrated in the Southwest and the Southeast. Therefore, on a household-adjusted basis, Nevada has substantially more than twice the national bankruptcy filing rate (23,000 filings per million households this year). Georgia, California, Utah, and Tennessee follow with about 50% more than the national average (16,000-17,000 filings per million households this year). The lowest number of bankruptcy cases filed, are in seven states that had rates less than half the national average, these are basically states which were not affected by the adverse real estate market: Alaska, the District of Columbia, South Carolina, North Dakota, South Dakota, Texas, and Vermont.

Searching for the Best bankruptcy Attorney/Lawyer to assist you ?

Looking for a bankruptcy law firm that charges low fees and offers convenient installment payment plans?

Is it important for you to consult with the attorney personally, not the secratary or the paralegal?

For Affordable Debt Relief, Low Cost Bankruptcy Legal Services, contact our Bankruptcy Law Firm , a debt relief agency, to schedule an appointment for a free consultation with an experienced Los Angeles bankruptcy attorney who can sit down with you, review your financial situation and help you decide whether filing for bankruptcy relief is best for your specific case.

(213) 251-8568 Toll Free (800) 925-1529

Contact Us Today !

(213) 251-8568

We welcome your questions and queries. Please see ourContact Us page for complete contact information.